Pricing, software & %'s

[ffp]

I have read your comments on pricing and have appreciated them all. Not to beat this subject to death... but here's something I didn't quite get out of them- When using software (LS) are you using your markup percentage (however you have decided to calculate it)in ranges.. say marking up mouldings that are priced $1-$2 at 3 times or are you marking up each individual moulding specifically based on cost for each? How are you factoring in freight charges (assuming customer has not asked for rush delivery which would be a separate charge)? Also, how are you pricing mats? I have it set up by united inch as I don't think it's really fair to charge a client for a full mat when they are only getting an 8x10 (again assuming it's not a special order).
Suggestions on analyzing individual tickets were EXCELLANT! My accounting software shows an overall COGS at 30% but I am in process of looking at individual tickets for the last month or so, just to make sure I haven't fooled myself. Would anyone like to share average COGS, Overhead (including labor) and profit percentages? Have read that 40%, 40% and 20% respectively are reasonable averages, but would love to hear from horse's mouths, so to speak! Thanks for everyone's participation, finding this a very useful source.

[Cheryl Crocker CPF GCF]

I use the same software and it is a bit limited as far as pricing. The nice thing is you can go in and add whatever you need to in the Specials or Pull Downs areas. This is where I added the $1/component charge plus the additional per foot charge on moulding and whatever else I need.

My moulding is on a sliding scale depending on how I order it. The inlays I get chop so the mark-up is slightly less than for a colored wood, for example. Everything is a minimum 3.5 on length ($20/ft+) on up. Some are as high as 12 x length.

The trickiest part for me was sitting down and figuring out how much to mark up what and where was the break. I think this has been discussed somewhere before.

As for other items, an 8x10 mat/foam is priced to at least cover the cost of an entire sheet.

I recently added a fitting/assembly charge for antique frames and WalMart frames which is double a normal fitting given the extra time needed. This is the nice thing about Lifesaver. I even added a pulldown for my French Mats!

Don't be afraid to charge enough. We offer Custom work...the difference between a Tailormade shirt or one from Wal-Mart.

[Bob Carter]

Cheryl is right about a sliding scale for your mldgs to reflect all those things that vary. Your prices need to reflect all the variables.

About the 40/40/20 rule, I'm not sure it works for us. The 40% CoG would never cover the waste we create nor the tije intensive nature of the selling process and manufacturing process. And if someone can bottom line 20%, these true genuises are in the wrong field.

The 30% CoG gets bantered around and it really means you should end up with a CoG of 30%, not start there. What do you do if you have to replace a frame, or you cut the wrong mat, or you take a bad check?

So, my suggestion: Create a proforma Statement of income and use the various levels of income (sales) you can reasonably expect. Factor the expenses accurately and watch the net rise as sales do. But this will help you determine what an ending CoG should be. Then go backwards from that point to develop a pricing structure that gets you to that goal. Then to maximize your ability to make a profit, adjust those items where more mark up is warranted. And you won't know that unless you know your market.

Everybody's overhead is much different and it's the relationship between total expenses and gross profit that determines your profit. My parameters are to keep occupancy charges (rent and all other expenses necessary to keep the doors open) at 25% or below, and payroll at 25%. If those two variables are met, we make money. But everytime my sales increase over my breakeven, the occ.charges go down, allowing more to be spent on other expenses to handle the increased volume.

If sales aren't up to par, then other areas have to be addressed. But all of these factors are dynamic and have a direct bearing on all the rest. None of which guarantees a profit. It really is making all the factors work in concert. And you just have to understand your own numbers, and that comes from experience and education.

As far as specific charges like mats and mldg markups, you just have to do your homework. Know your cost, know your market. Then once you have it calculated to the exact perfect price based on your knowledgeable calculations, add $1 to every major component and see if anyone blinks. If you as good at design, salesmanship and product selection as everyone else is, then charge accordingly.

Not to embarrass anyone, but Cheryl took that very advice and she told me the first weekend she did that exact thing, she generated an extra $100 without a penny more of any expense, nor did she have any price resistance.

The moral: Charge as much as you think you can get

[John Richards]

Bob's right. Charge as much as you think you can get and what the market you're in will bear. We teach 7 week long classes a year on framing and when we get to pricing we can't emphasis enough that you need to do a minimum 3x's markup...MINIMUM to be successful. Charge for full mat boards even on an 8x10! There have been numerious discussions on how to store / use scrap board. If you don't pay for that entire board on the first customer, the odds of recouping your costs and profits in a reasonable amount of time are very slim.

John

[Cheryl Crocker CPF GCF]

To give a better idea on the sliding scale, take, for example, my glass prices... an 8 x 10 is marked up more than 10 times the cost of a lite. Most glass I have is at least x4 on the larger sizes... People expect to pay a premium when I state that we use the best available, speicifically designed for the picture frame industry.

The same goes for mats...the Bainbridge line is one step higher than all others .. no problems with this when I explain the zeolite technology and added protection.

This is where you can really adjust pricing depending on your ability to succinctly explain your product and sell the client on quality. I think this was one of the most important lessons I learned about pricing custom work.

And bless you, Bob...I have banked an additional several hundred dollars thanks to your suggestion in just a week and a half! (I sound like an infomercial!)

[Bob Carter]

Cheryl-In that round you banked a magnificent, stupendous, exhilarating several hundred dollars. You are NOT the weakest link. Good Bye

[MerpsMom]

As always, a good reminder to review the prices often. Might also prevent that sinking feeling when you call your customer with the estimate over which you agonized even with pricing software, and he says faster than the New York minute: "Fine! When can I pick them up?" Oh, maa-a-a-n.

Tomorrow I shall hit the "up" key on the percentage increase. http://www.thegrumble.com/framer/ubbs/smile.gif

[Cheryl Crocker CPF GCF]

That's the hard part, pricing as high as you can without pricing yourself out of the market. I think pricing original artwork is easier! That is why it is important to know what your competition is pricing. Every so often, I will get price comparisons from two framers to make sure I am in line (Not undercharging).

[Sherry]

My COG runs at 21%. My accountant and I have broken down all the cost of goods components and I have a comparison column that shows me what I spent this year and what I spent last year during the same month/year. Over the years I've read how cost of goods should come in around 30% and studied my figures to see if I failed to add something in that would make my COG that low. I can't see that I have. I do have a mat shorts system that seems to work, 60% of my frames are made from length and I use those shorts to make readymades or small mirror frames; but I still can't believe my COG always hovers between 20-22%. Of course I love it... but can you good folks throw out some ideas on what should be included in the COG so I can ascertain that I'm adding the right numbers in?

[tgfu408]

I can only add this:

are you including the price of artwork (prints, Limited editions, etc) you are buying? Any accessories like candles, photoframes, etc.

If you are, and you're still at 20-23%, God Bless. You're doing FANTASTIC.

------------------
Michael LeCompte CPF

[Bob Carter]

Switch accountants if that person can't answer this most fundamental business question

[Sherry]

I have included glass, mats, chops, moulding, freight, open frames, dry mount supplies, foam board, prints, mirrors, glue, v-nails, stretcher bars, hanging supplies, dust covers, blades, tape, conservation mounting supplies, mylar, paper to wrap finished projects in, photo frames; and at this point my accountant is not familiar enough with framing to suggest anything else that should be included in COG.

[Cheryl Crocker CPF GCF]

Sherry, I've been through several accountants for this and other reasons. Keep looking for someone that can and will spend the time with you to make sure your business is in line. There is a company in my area whose specialty is reviewing and evaluating businesses...they have been more help than all the accountants put together.

[Bob Carter]

Sherry-I hope you don't take my advice as not helpful. But as Cheryl and I have suugested, find some one who is interested in your business (and I didn't say in framing). If you want a clearer picture of your CoG, take a physical inventory.

But if you don't know how to do that, ask your CPA. If she is non-responsive, find another professional to help you. They don't need to be experts in framing to offer you sound advice. And if they think your business is too small to spend time on, find someone else. It really shouldn't make any difference if you are a restaurant, shoe repair or dry cleaners.

[Sherry]

I've actually gained valuable knowledge from the grumblers... and most of the time they aren't even grumbling! I do a physical inventory every year, but I will mull over the type of accountant I need. What I need is the accountant I had when I first bought the business in 1995 but who is not affiliated with one of the largest firms in the area. Perhaps I'm getting what I pay for. But all that aside, I've read and studied and read some more and feel that I have included all I can in the COG chart of accounts and the cog consistently hovers between 19 and 21%. I think it helps that I hired an excellent assistant with 15 years experience, pay her accordingly, and together we waste very little.

[tgfu408]

Personally, I would love for you to share your secrets as to how you keep COGs around the low 20s. I thought I was doing great with my COGS around 27-28%. You're doing fantastic at that rate.

If it ain't broke, don't fix it.

------------------
Michael LeCompte CPF

[Sherry]

Thank you Michael for the compliment. I'll throw out some ideas I think are helping, but actually I believe it's a combination of a lot of things.
1. I always pay my bills so I can take the trade discount. Have moved the majority to credit card, but I didn't move three distributors that took away my discount in order for me to use the cc. I still write them a check.
2. I use no paper mats.
3. I use mat and length shorts to make "ready-set-go" mats and custom ready-made frames (up to 11x14 on the mat sizes)and 16x20 on frames.
4. To students and artists I sell a bunch of larger, non-standard mats that don't work out for one reason or another... specks on them, wrong size, wrong size opening, etc.
5. I buy regular glass in all standard sizes 8x10 to 32x40 and cut the closest size. Stock non-glare and UV in about 3 sizes each; and wrap the left-overs in brown paper so it won't get scratched.
6. About 60% of our frames are length, so I spend wisely when ordering length; and have a couple of profiles I order 1000 ft. at a time.
7. I carefully order chops so I won't have too many below minimum fees to pay; nor too many handling charges.
8. I order tapes, fitting supplies, metal frame supplies in bulk about three times a year. That goes for v-nails.
9. I never order COD.
I hope some of these tips help. And I would appreciate any you have that I haven't mentioned.
Sherry

[Cheryl Crocker CPF GCF]

That sounds like what we've been doing. Going from a large, multi-location operation to a small, new store was a shock and we had completely reorganize how we did everything.

The biggest difference in the two operations for me is not ordering tons of length and stocking 10s of thousands of feet. Aside from amybe five stock lines, all left over length is immediately cut into readymades. I don't have to buy readymades and have a consistent cash flow on moulding which would have sat for years at the other store.

I even have a market for nasty, falling apart old ugly frames people bring in and leave.

For my size operation, this works and does add up to enough to make a difference at the end of the month.